Investor anxiety over inflationary pressures and COVID crisis lead to worst median return since Q1 2020
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The median return on Canadian defined benefit pension plans in the first quarter of 2022 was -5.5%, the lowest quarterly performance since Q1 2020 (-7.1%), according to the RBC Investor & Treasury Services All Plan Universe.
"The market experienced growing economic and geopolitical uncertainties during the first quarter of 2022," said Niki Zaphiratos, Managing Director, Asset Owners, RBC Investor & Treasury Services. "Russia's invasion of Ukraine has amplified existing investor anxiety over growing inflationary pressures and the Covid crisis."
The MSCI World Index returned -6.2% during the quarter, indicating that global equities markets were extremely volatile.
Concerns about rising interest rates and further disruptions to global supply chains caused growth style equities (MSCI World Growth, -10.7%) to outperform value style stocks (MSCI World Value, -1.8%).
During the quarter, foreign equities in the RBC All Plan Universe returned -7.5%. The Canadian dollar's strength exacerbated some of the unhedged plans' local currency losses.
The Canadian stock market (S&P/TSX Composite, +3.8%) profited from its huge exposure to rising commodities equities, and it was the only developed equity market to end the quarter in the black.
Losses in the information technology (-35.5%) sector offset gains in the energy (+28.7%) and materials (+20.1%) sectors.
Plan-held Canadian stocks climbed 3.9%, outperforming the whole market index.
Central banks stepped away from ultra-loose monetary policies utilized during the pandemic and signaled vigorous measures to confront rising inflationary pressures, causing bond rates to rise significantly across the yield curve.
Long-term bonds (FTSE Canada Long-Term Bond Index -11.7%) underperformed short-term bonds, resulting in a -7.0% drop in the FTSE Canada Universe Bond Index for the quarter (FTSE Canada Short Term Bond Index, -3.0%).
The average return for RBC All Plan Universe Canadian Fixed Income was -9.8%.
"The current geopolitical risk has compounded the existing headwinds facing pension plans – and we are now looking at the possibility of a sharp increase in interest rates which could lead to the devaluation of risky assets," Zaphiratos said. "Plan sponsors will need to tread carefully in the months ahead."